This afternoon, around 1:20 Chicago Time, the Federal Reserve Board reduced it's benchmark Fed Funds rate to a target range of between 0% and 0.25% - the lowest in history! Will the Fed's latest move to make financing to consumers and businesses more affordable spur the U.S. Housing Market?

That's unknown, of course. However, previous Fed rate cuts, as well as aggressive economic action by the Treasury Department, have yet to turn the housing market around, despite lower mortgage interest rates.

For those who may have been snoozing this afternoon, the Fed completed their December meeting this afternoon by reducing it's benchmark target rate to a maximum of 0.25%. The target has never been this low! Never!

Further, the Fed signaled they would use "every weapon in its arsenal" to pull the U.S. out of its now year-long recession. They indicated that "labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment and industrial production have declined" since its last meeting in October . "Financial markets remain quite strained and credit conditions tight."

Fed tactics can include floating more money - in essence, increasing the paper money supply, with hopes that banks will make more consumer and business loans. It can buy more Mortgage Backed Securities, a strategy already proposed last month, with hopes of reducing interest rates for new home loans to an attractive 4.5% or lower.

The Federal Reserve Board is also looking at the possibility of purchasing U.S. Treasury Notes, in order to bring down rates for long-term loans.

The action by the Fed also included reducing the inter-bank Discount Rate to 0.5%. It will have the effect of lowering the so-called Prime Rate, or the rate charged by banks to its best customers (not set by the Fed directly) to 3.5%, from its current 4.0% level. This will reduce interest rates on some types of adjustable-rate mortgages, credit card interest rates, home equity loans, and other loan programs tied to this rate, and provide some relief to consumers, many of whom seem to be drowning in ever-accumulating high-rate debt.

In better times, interest rate cuts stimulate business and consumer spending, as well as home purchases because of the increased availability of mortgage funding. The Fed must be careful that overly-aggressive rate cuts do not spur inflation. Those concerns are nearly silent now, as the Federal Reserve board does not consider inflation a threat presently, and many potential home buyers can't get mortgages because of more-stringent underwriting standards and tighter credit in general.

So what happens to the Real Estate Market as a result of the latest Fed move, both here in Chicago, and across the U.S.?

After over a year of government assistance beginning with the sub-prime collapse of 2007, and culminating with the $700 Billion Federal Bailout of financial institutions less than two months ago, the housing market is still reeling! Year-over-year foreclosures are up dramatically, and they are predicted to continue to skyrocket throughout 2009. Median home prices, resale units sold, and new housing starts are tumbling.

Even today, banks who have received bail out funds from the U.S. Government are hesitant to lend, fearing increasing unemployment will lead to high rates of loan default in the future. The Fed does intend to buy about $600 Billion of Fannie Mae and Freddie Mac government-backed mortgage debt, to allow these government-sponsored and now controlled entities to lend out increasing amounts of money earmarked for new home loans.

However, in many parts of the U.S., homes-for-sale inventories remain bloated, and the likelihood that home prices will continue to fall have many prospective buyers sitting on their hands, wallets in pockets, for now, still unwilling to buy their new home.

Will any specific action restart the U.S. Housing Market? Despite very aggressive, almost radical action in Washington, many remain skeptical!

See our post today viaBlogChicagoHomes.com for more, including a link to Jon Hilsenrath's article in today's Wall Street Journal, as well as an Associated Press article in today's Chicago Tribune.

Hi Dean I am happy they are trying to pull out all the stops but no matter how good the program and the wonderful lowest interest rates ever....the people need the high credit score to qualify for these wonderful programs. It seems to me there just are not that many out there that will qualify. It is funny..the people that it benefits probably really don't need the breaks, since their high credit score reap them many benefits already.

The fed's move is just another small piece of the puzzle to provide fuel to get out of this mess. We all know this is going to take a long time to fix since it took a long time to create. Eventually we will be better off and people will get financing based on their capacity to pay. I know many people who can qualify for mortgages but they are afraid to make the move. I think the low end of the market will excelerate this winter/spring as people can afford smaller homes instead of renting. i'm seeing a lot more positive reports in the media and prices are approaching the point where they are less expensive than replacement cost.

Hi Dean, been a while since I visited with you. The fix for the housing market isn't the interest rate. The wouldn't say lending is not part of the problem either. The minimum credit score for an FHA loan is 670 in our market. The other issue is 3.5% down and has to be seasoned money. Seller can still pay some of the closing costs and pre-paids but the down has to come from the buyer, gifted or otherwise and be seasoned.

Within our market is a large foreclosure and short sale contingency that accounts for 65% of our total housing sales. That being said it will take more than interest rates to stimulate our market. Great post and timely market update.

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